The most recent financial statements for summer tyme, inc., are shown here: income statement balance sheet sales $3,900 current assets $5,300 current liabilities $840 costs 2,300 fixed assets 6,400 long-term debt 3,630 taxable income $1,600 equity 7,230 taxes (33%) 528 total $11,700 total $11,700 net income $1,072 assets, costs, and current liabilities are proportional to sales. long-term debt and equity are not. the company maintains a constant 50 percent dividend payout ratio. as with every other firm in its industry, next year's sales are projected to increase by exactly 30 percent. what is the external financing needed? (do not round your intermediate calculations.)

AFN  $2,561

Explanation:

To forecast the additional funds needed it's necessary to use the following equation:

AFN = A0 + S1/S0 - L0 x S1/S0 - S1 x PM x b

Where :

A0 = Current Level of Assets

S1/S0 = Percentage Increase in sales

L0 = Current Level of Liabilities

S1 = New Level of Sales

PM = Profit Margin

b= Retention rate = 1 - payout rate

Final Value

AFN = A0 ($11,700) + S1/S0 (0,50) - L0 ($0,840)

x S1/S0 (0,50) - S1($ 5,070) x PM (0,27) x b (0,50) = $2,561

The additional funds needed is the amount of money that the company must raise to increase the level of asset to support  the new level of sales.

The above equation indicate the excess increase in assets over the increase in liabilities and retained earnings as a consequence of the new level of sales.

i'ts proportional. if the inflation rate is 12% for example, the cpi will be 12% less.

hope it ,

bioteacher101

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